If there is one thing where CNBC and Fox, Larry Summers and Peter Navarro agree on, explicitly or implicitly, it is on the fiscal stimulus. Specifically one in which the stock market is elevated over all else, in monetary and fiscal policy actions of governments.
Scott Galloway (HT: Ananth) is among the few to call it out. Sample this on the airline buyout,
The capital structure of private firms is meant to balance upside and downside. CNBC/Trump want to protect current equity holders at the expense of future generations with rescue packages that explode the deficit. They also want to protect airlines, who spent $45 billion on buybacks and now want a $54 billion bailout, disincentivizing other firms (e.g., Berkshire Hathaway) that have built huge cash piles foregoing current returns. The rescue package should protect people, not businesses. From 2017 to 2019, the CEOs of Delta, American, United, and Carnival Cruises earned over $150 million in compensation. But, now … “We’re in this together” (i.e., “bail our asses out”). And what happens if they (gasp!), go out of business? Simple, the equity holders, and unsecured debt holders, get wiped out. These are the cohorts who, despite the recent meltdown, have registered a 3.3x increase in the Dow since the lows of 2008.
As long as they keep making old people, and younger people want to take their kids to Disney’s Galaxy’s Edge, there will be cruise lines and airlines. Since 2000, US airlines have declared bankruptcy 66 times. Despite the obvious vulnerability of the sector, boards/CEOs of the six largest airlines have spent 96% of their free cash flow on share buybacks, bolstering the share price and compensation of management … who now want a bailout. They should be allowed to fail. Bondholders will own the firms. Ships and planes will continue to float and fly, and there will still be a steel tube with recirculated air waiting for you post molestation by Roy from TSA.
And pandemics have long-term benefits,
Pandemics typically result in higher wages over the next several decades as we recognize that essential workers (the gal/guy delivering your Greek yogurt and placing your Indian food in the backseat of your car) should be paid more. A good thing. Letting firms fail, and share prices fall to their market level, also provides younger generations with the same opportunities we, Gen X and boomers, were given: a chance to buy Amazon at 50x (vs. 100x) earnings and Brooklyn real estate at $300 (vs. $1,000) per sq. ft... Just as death is a key part of life, so is the demise and reinvention of firms that can’t endure tropes. Covid-19 is no more historic than an 11-year bull market. With dangerous disregard for future generations we’ve decided that hundreds of thousands of people dying is meaningful, but the NASDAQ going down would be worse. The rescue package is $2.2 trillion. The annual CDC budget — $6.6 billion.
The Times has an article about how corporates who signed up to the Business Roundtable declaration last year, committing themselves to the welfare of their workers and communities, are now furloughing workers despite making large profits and paying out dividends. Many of them have undertaken massive share buybacks, leaving them with fewer resources to aid workers when disaster struck.
Sample this about Marriot, whose CEO was also the co-chairman of the Business Roundtable's Covid 19 task force,
Take, for example, Marriott International, the world’s largest hotel chain, which last year earned $1.2 billion. It has begun furloughing most of its American workers, jeopardizing their access to health care, even as the company paid out more than $160 million in quarterly dividends and pursued a raise for its chief executive, Arne M. Sorenson... On March 19, Mr. Sorenson distributed a video message in which he said the pandemic was so destructive that it required the furloughing of workers... Mr. Sorenson said he was forgoing his salary — $1.3 million annually — for the rest of the year, though he said nothing about his stock-based compensation, which exceeded $8 million last year, or the cash incentive plan that brought him $3.5 million, according to a company statement. Twelve days later, the company paid its scheduled dividend to shareholders. On April 8, Marriott filed with the Securities and Exchange Commission proposals that its board would present for approval at a meeting of shareholders next month. Among them: a 7.7 percent salary increase for the chief executive, plus a cash bonus of up to 200 percent... Over the last two years, while Marriott was recording profits of more than $3.1 billion, it spent more than $5 billion to buy shares of its stock.
Prominent others have been no different, even if less egregious,
Amazon, another signatory, has seen protests flare outside warehouses in several American cities, as workers complain that the company — valued at more than $1 trillion — has failed to provide protective gear like masks and hand sanitizers, exposing them to the virus... Macy’s, the retail chain, which last year earned $564 million, has furloughed most of its workers, though it has continued to pay their health insurance. It distributed about $116 million in dividend payments to shareholders on April 1.
The declaration, despite its vacuousness, drew gushing coverage and praise - an HBR article claimed it sounded like a "big deal". Several leading names in business academia approved (see the roll call), in fact, even saying that it would have "material impact on the well being of US workers"!
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